Beneficiary designation for a 401k trust in AZ

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Topic Author
jackal981
Posts: 20
Joined: Fri Jan 21, 2011 10:06 pm

Beneficiary designation for a 401k trust in AZ

Post by jackal981 »

If an individual sets up a custom 401k for a mega-backdoor Roth in the form of a trust (The trust would hold 4 accounts: Pretax and Roth contributions for husband+wife), how can the individual ensure that his next of kin are beneficiaries for the 401k? When the custodian was asked, the response was that entity type of accounts such as retirement accounts and trusts don't die and do, a beneficiary can't be designated to them. Not quite sure what that means and how one can ensure the 401k assets go the appropriate next of kin if the current owners of the trust pass away. I live in AZ if that is relevant.
SuzBanyan
Posts: 519
Joined: Thu Jun 02, 2016 11:20 am

Re: Beneficiary designation for a 401k trust in AZ

Post by SuzBanyan »

I’m confused about your question.

A 401k plan is sponsored by a business and the accounts under the plan are owned by individuals. A trust cannot own an account under a 401k plan. Each account owner may designate a beneficiary to inherit the account upon the death of the owner. One possible beneficiary is a trust and there are pros and cons to naming a trust (rather than a person) as a beneficiary.

Because a trust is not a person, it does not die. A trust may remain in existence for longer (sometimes much longer) than the person who originally funded the trust, it depends on the language of the document which created the trust and applicable state law.

I hope this helps.
Alan S.
Posts: 10597
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Beneficiary designation for a 401k trust in AZ

Post by Alan S. »

jackal981 wrote: Mon May 03, 2021 12:36 pm If an individual sets up a custom 401k for a mega-backdoor Roth in the form of a trust (The trust would hold 4 accounts: Pretax and Roth contributions for husband+wife), how can the individual ensure that his next of kin are beneficiaries for the 401k? When the custodian was asked, the response was that entity type of accounts such as retirement accounts and trusts don't die and do, a beneficiary can't be designated to them. Not quite sure what that means and how one can ensure the 401k assets go the appropriate next of kin if the current owners of the trust pass away. I live in AZ if that is relevant.
Normally, each spouse would name either other as beneficiaries of their 401k account, but if they are concerned that the surviving spouse would forget to name a new beneficiary or a common disaster could occur, they should each be able to name their spouse as beneficiary per stirpes. Solo 401k accounts should have the same beneficiary options as any other tax deferred account. AZ does not have any exceptions to these rules.

A trust could also be the named beneficiary if there is a reason to do so, but the trust beneficiaries would usually be subject to the 10 year rule. Conversely, if the surviving spouse inherited there would be a much longer stretch available and the surviving spouse could a spousal rollover to their own IRA which would be subject to a much longer distribution period and smaller RMDs once they begin.
Topic Author
jackal981
Posts: 20
Joined: Fri Jan 21, 2011 10:06 pm

Re: Beneficiary designation for a 401k trust in AZ

Post by jackal981 »

Thank you for the response!
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